COVID-19: Government interventions and the economy

Xiaohui Chen, Ziyi Qiu 13 May 2020

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In response to the COVID-19 pandemic, unprecedented government interventions have been witnessed throughout the world. These intervention polices, while heterogeneous across countries and regions, all aim to reduce the population contact rates and thus mitigate the virus transmission. On the other hand, there is an inevitable trade-off between the disease control outcomes and economic consequences, since prolonged government interventions have large downside impact on the overall economic and social well-being, including escalated unemployment rates and business bankruptcies (Coibion et al. 2020, Barrot et al. 2020, Gourinchas 2020, Fadinger and Shymik 2020, Rowthorn 2020, Thunstrom et al. 2020). In view of the rapidly changing infection situation and widely spreading negative consequences in most economies, it is of utmost importance to investigate which interventions are most successful in controlling the epidemiological dynamics and economic losses, and to what extent. Such studies are useful for policymakers to choose appropriate government measures in order to balance the conflicting objectives between virus transmission and economic outcomes.

A number of recent works studied the government intervention effects. Chang Ku et al. (2020) applied the Bass Susceptible-Infected-Recovered (Bass-SIR) model to study the lockdown and social distancing effects for province-specific epidemiological parameters in China. Flaxman et al. (2020) used only the observed death data and proposed a (non-SIR based) Bayesian model to study several intervention effects on 11 European countries. Ferguson et al. (2020) modified an individual-based simulation model to study the consequence of non-pharmaceutical interventions (NPIs) to reduce the COVID-19 mortality and healthcare demand in the UK and the US. Wang et al. (2020) developed a Susceptible-Exposed-Infectious-Removed (SEIR) model to evaluate the impact of NPIs on the epidemic in Wuhan, China. Lai et al. (2020) built a travel network based SEIR model to study the impact of different NPIs in China. Chen et al. proposed a time-dependent SIR model to account the impact of the Wuhan city lockdown and predicted the future trend of the COVID-19 transmission.

Nevertheless, there is a lack of analysis based on integrated infection, recovery, and death data from different countries with significant timeline variations in their NPIs on the global scale. To borrow information from panel data collected worldwide and to improve the prediction of epidemiological developments for countries at later stages, in a recent paper (Chen and Qiu 2020), we investigated the impact of government policies on the COVID-19 transmission by incorporating data from nine countries which have various policy intervention strategies and were or are currently the epicenters. By investigating the different intervention strategies and the associated epidemiologic consequences across the globe, our research quantifies the effectiveness of each government policy in suppressing the virus transmission. By understanding the benefits of different combinations of government policies in reducing the transmission rates, our analysis provides an economically affordable government intervention solution to address both epidemiological and economic concerns.

Centralised quarantine, lockdown, school closure, and mask wearing are found to be effective in reducing virus transmission

Our research examines 6 major government interventions (i.e. travel restriction, centralised quarantine, mask wearing, lockdown, school closure, and social distancing) imposed by nine countries (i.e., China, South Korea, Singapore, Italy, Spain, Germany, France, the UK, and the US). By analysing different policy strategies and comparing the associated infection control outcomes across the globe, our empirical analysis estimates the impact of each policy and finds that centralised quarantine, lockdown, school closure, and mask wearing are particularly effective in mitigating the COVID-19 transmission, ranked by the magnitude of their effectiveness from highest to lowest. In addition to quantifying the impact of a wide range of government policies on a global scale, our research also provides crucial empirical evidence in support of the effectiveness of mask wearing, which has been a constant subject of debate between the eastern and the western countries. Besides mask wearing, our work also emphasises centralised quarantine as another effective way to prevent further contagion by temporarily separating the infected individuals from their households. Neither of these polices have been ordered in the US and Europe at the time of writing this article.

Lockdown policy can be avoided if school closure, mask wearing, and centralised quarantines are in place simultaneously

While government intervention measures have different impact on mitigating virus transmission, they are also associated with different degrees of costs to the overall economy. Policies such as complete lockdowns suspend majority of economic activities, and are therefore likely to cause large negative socioeconomic consequences and expose the economies to a high risk of a recession or even a depression. Other policies such as mask wearing are cost-efficient due to the low cost of production and easy implementation. Thus, it is imperative for governments to choose the appropriate set of economically efficient intervention polices to balance the virus transmission outcomes and the economic losses.

By comparing the virus transmission outcomes under different counterfactual scenarios, our study aims to find an appropriate combination of government interventions to achieve a balance between the conflicting objectives of minimising the COVID-19 transmission and minimising the negative impact on the economy. Specifically, by predicting infection trends under different counterfactuals, the scenario analysis finds that lockdown policy can be avoided without substantially altering the infection control outcomes as long as three other policies are imposed simultaneously (i.e., the schools remain closed, everyone wears masks, and there is a centralised quarantine system to separate the infected individuals from their households temporarily). As the US and many European countries are currently considering reopening their economies, our empirical findings show that the lockdowns can be cautiously lifted under the circumstances described above. In addition, for the countries which have not experienced an outbreak but might at some point in the future, our research provides an economically feasible intervention approach where a lockdown can be avoided from the beginning, thus prevent its negative economic impact.

Conclusion

Our work proposes a dynamic panel SIR model to estimate the impact of various government intervention policies on the COVID-19 transmission from nine countries across the globe. Our findings suggest that centralised quarantine is the most effective measure, followed by lockdown, school closure, and mask wearing. By considering different government intervention policy scenarios, our research provides useful insights for countries to choose the economically affordable policies in order to balance the benefits on infection controls and the costs to the overall economy. The scenario analysis suggests that countries could avoid lockdown policy by imposing school closure, mask wearing, and centralised quarantine simultaneously to reach similar virus transmission control outcomes.

Overall, our research recommends governments to re-evaluate the intervention approaches by using economically affordable policies to replace the economically costly ones without significantly heightening the epidemic peak. Taking into consideration the heterogeneity across countries, our research also provides guidance to some countries, which are currently experiencing or may experience future outbreaks, to customise and adjust their choice of government intervention policies. The research findings can provide useful insights for different countries and regions worldwide as well as for future pandemics.

References

Barrot, J-N, B Grassi and J Sauvagnat (2020), “Sectoral effects of social distancing”, Covid Economics Vetted and Real-time Papers, CEPR, Issue 3, 10 April.

Chen, Y-C, P-E Lu, C-S Chang and T-H Liu (2020), “A time-dependent SIR model for COVID-19 with undetectable infected persons”, arXiv preprint

Chen, X and Z Qiu (2020), “Scenario analysis of non-pharmaceutical interventions on global COVID-19 transmissions”, Covid Economics: Vetted and Real-Time Papers, CEPR, Issue 7, 20 April.

Coibion, O, Y Gorodnichenko and M Weber (2020), “Labour markets during the Covid-19 crisis: A preliminary view”, VoxEU.org, 14 April. 

Gourinchas, P-O (2020), “Flattening the pandemic and recession curves”. In Mitigating the COVID Economic Crisis: Act Fast and Do Whatever It Takes, VOX CEPR Policy Portal (2020): 31.

Fadinger, H and J Schymik (2020), “The costs and benefits of home office during the COVID-19 pandemic: evidence from infections and an input-output model for Germany”, Covid Economics Vetted and Real-time Papers, CEPR, Issue 9, 24 April.

Ferguson, N M, et al.  (2020), “Impact of non-pharmaceutical interventions (NPIs) to reduce covid19 mortality and healthcare demand”, MRC Centre for Global Infectious Disease Analysis, COVID-19 report.

Flaxman, S, S Mishra, A Gandy, et al. (2020), “Estimating the number of infections and the impact of non-pharmaceutical interventions on covid-19 in 11 European countries”. MRC Centre for Global Infectious Disease Analysis, COVID-19 report 13.

Chu Chang Ku, Ta-Chou Ng and Hsien-Ho Lin (2020), “Epidemiological benchmarks of the COVID-19 outbreak control in China after Wuhan's lockdown: a modelling study with an empirical approach”, SSRN.

Lai, S, et al. (2020), “Effect of non-pharmaceutical interventions for containing the covid-19 outbreak in China”, MedRxiv paper.

Rowthorn R (2020), “A cost-benefit analysis of the COVID-19 disease”, Covid Economics Vetted and Real-time Papers, Issue 9, 24 April 2020.

Thunstrom, L, S Newbold, D Finnoff, M Ashworth and J F Shogren (2020), “The benefits and costs of using social distancing to flatten the curve for COVID-19”. Journal of Benefit-Cost Analysis, forthcoming.

Wang, C, et al. (2020), “Evolving epidemiology and impact of non-pharmaceutical interventions on the outbreak of coronavirus disease 2019 in Wuhan, China”. MedRxiv paper.

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Topics:  Covid-19

Tags:  COVID-19, Government interventions, lockdown, masks, social distancing

Associate Professor of Statistics, University of Illinois at Urbana-Champaign

Economist, Keystone Strategy

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